Buy Here – Pay Here Auto Dealers Exploit Desperate Low Income Individuals Who Need Cars

This Wouldn’t Happen in a Decent, Caring Society – It Happens in the United States

At first glance one would not think it is a profitable business selling autos on credit to low income individuals who can barely make the payments.  One would be wrong.  It is a highly profitable business selling cars to people who cannot make the payments and who ultimately suffer repossession.

How is this possible?  The Los Angeles Times in a burst of investigative reporting has the answer.  It turns out

Buy Here Pay Here lots sold nearly 2.4 million cars nationwide last year, up from 1.3 million a decade ago, according to CNW Marketing Research.

CNW estimates that there are more than 33,000 such lots nationwide, compared with about 20,000 dealerships selling new cars. Buy Here Pay Here dealers make $80 billion in loans every year, according to the Federal Deposit Insurance Corp.

 

So what are Buy Here – Pay Here auto sales?   They are used car dealers who sell mostly substandard used cars at above average used car prices to people who have poor credit but desperately need a car.  On top of that they charge exorbitant interest rates to further gross up the profits.  Don’t they have a lot of repossessions?  Certainly, in which case they take the car back and sell it again, sometimes at a higher price.

About 1 in 4 buyers default. In the real estate and credit card industries, that would be bad news. In the world of Buy Here Pay Here, it's just another avenue for profit: The car can be repossessed and put back on the lot for sale in short order. A new buyer makes a down payment, takes on a high-interest loan and the cycle starts anew.

Provided they don't get wrecked, these recycled vehicles just keep paying dividends. At some dealerships, cars have been sold and resold over and over -- three, four, even eight times apiece, motor vehicle records show.

And when customers default on their loan and have their car taken away, they are still not done.

Many pursue their customers for years after they've seized and resold the vehicles. Some keep lawyers on staff, filing dozens of lawsuits each month to recoup unpaid balances and garnish debtors' wages.

One high-volume dealership, Neil's Finance Plaza of Kansas City, Mo., has filed more than 6,000 lawsuits since 1995 through an affiliate, seeking unpaid balances from customers who defaulted, records show. The dealership sells about 1,400 vehicles a year.

As for regulation, fogetaboutit. 

Many don't bother to register their lending operations with state authorities. Last year, Massachusetts regulators sent notices to 33 dealers, citing them for lending without a license.

California doesn't recognize Buy Here Pay Here dealers as a distinct branch of the used-car business, and there are no regulations that apply to their unique practices.

The Federal Trade Commission has not prosecuted a major auto lending case in more than a decade, said Reilly Dolan, an assistant director of the FTC's division of financial practices.

The industry takes this attitude

Those in the business make no apologies for their practices.

“Our customer doesn't have any money. He doesn't plan for a rainy day,” Chuck Bonanno, a Buy Here Pay Here consultant in Florida, told dealers at a recent industry conference in Las Vegas. “He isn't going to pay unless you make him.”

Dealers say they offer a valuable service, giving people with bad credit access to transportation so they can provide for their families.

And there is just enough truth in that to enable them to sleep at night.  But take a look at every other industry that preys upon low income people in desperate need, they all say the same thing.

So interest rates averaging 25%, deceptive sales practices, inflated prices all to get a substandard car so a low income person can get to work.  Is this a great country, or what!